Being proactive about fraud prevention

Q: How can companies in emerging markets prioritise integrity to create long-term value?

A: Amidst the prevailing economic complexities, there are several opportunities for businesses and those who work for them to act unethically. The latest EY Global Integrity Report 2022 shows that 32 percent of companies from emerging markets believe that bribery and corrupt practices pose the greatest risk to their long-term success, and 27 percent point to fraud. Thirty percent believe that cyber and ransomware attacks pose a significant threat.

As we begin the processes of rebuilding the economy, recalibrating how and where work is performed, and rewriting processes for an increasingly digital operating environment by creating digitally driven processes and incorporating artificial intelligence (AI), we have an opportunity to close the gap between our words and actions.

Ultimately, integrity in business is not about compliance box ticking and risk management – it’s about protecting the organisation, its assets and reputation, all of which drive long-term sustainable value.

Q: Which five actions will accelerate your Integrity Agenda?

A: Really know your business: fraud and corruption risk assessments are central to protecting an organisation and must be taken seriously from the top down, be data enabled, and performed on a regular and robust basis with any gaps or weaknesses exposed and corrected.

Put the human into compliance: recognise that humans commit fraud, not systems or processes. The best compliance frameworks can be breached if there isn’t an ethos of doing the right thing. A strong culture of integrity is as important as establishing a strong control environment.

Be empowered by the power of your own data: consider the increase in data volumes to be an opportunity to aid in the fight against fraud rather than a threat. Use data to detect unusual behaviour, and guide your response to preventing and investigating it.

Educate, don’t train: according to the report, the message of integrity is slowly getting through but the appetite for malpractice is also growing. Continue the journey of communication and awareness building by transitioning from training to educating – so that everyone understands both the ‘why’ and ‘what’ of business integrity.

Speak up and support whistleblowing: Allow people to report suspected wrongdoing in good faith and make them feel safe by providing protection from retaliation.

Q: What can be done to detect fraud as early as possible or even prevent it?

A: The prevention and detection of fraud is primarily the responsibility of management. Auditors, along with other members of the corporate governance and reporting ecosystem, play a critical role in detecting material fraud. Prevention techniques include the implementation of policies, procedures and controls, as well as training and fraud awareness.

Entities should have a system of strong internal controls over financial reporting that specifically addresses the risk of fraud with clear roles for each stakeholder, as well as certification and reporting requirements where applicable.

According to the Association of Certified Fraud Examiners, the lack of internal controls could contribute to nearly one-third of all fraud.

Systems and controls aren’t the only protection mechanisms against fraud. Culture and incentives also play a role.

Q: How does data analytics help identify unusual transactions and patterns of transactions that might indicate material fraud?

A: Collection and analysis of all types of data help manage legal, compliance and fraud risks. With fraud investigation and business knowledge, forensic data analytics can monitor, prevent, detect, investigate and predict anomalies in business activities and transactions.

According to the Association of Certified Fraud Examiners’ Report to the Nations, organisations that use proactive data monitoring can reduce fraud losses by 54 percent on average and detect scams in half the time.

Historically, many organisations relied on time-consuming manual processes to detect fraud scams. Unfortunately, these methods are inherently reactive since they detect suspicious activity only after it has occurred.

For instance, audit procedures frequently rely on sampling, leaving large amounts of data unexplored. Advances in data analytics now allow for the examination of massive amounts of data to uncover patterns, relationships, correlations, anomalies and other insights. This technology enables organisations to be responsive in monitoring their activities in real time or near real time, and detect high-risk or suspicious activity easily and cost effectively.

Q: How can EY Forensic & Integrity Services help organisations prevent, detect and respond to financial, regulatory and reputational risks?

A: The EY Forensic team brings together deep industry expertise with data science and analytics capabilities to help businesses detect and investigate instances of data breach, fraud, waste, misuse, abuse, corruption and noncompliance, as well as assist in regulatory or litigation responses.

The forensic team also uses data analytics to assist organisations in identifying gaps in internal controls, increasing risk transparency and improving decision makers’ understanding of business risks.

Organisations can gain operational efficiency by applying insights from their compliance efforts to the broader risk and business initiatives.

– Compiled by Yamini Sequeira

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